Briefing on climate financing

A vital gauge of success at the Paris climate talks will be the funding made available to implement action.

As we reach the business end of the negotiations, here’s IRIN’s lowdown on the complex and all-important money issue:

What is climate financing?

There is no clear definition. But the idea is that developing countries need financial support to reduce emissions, decarbonise their economies, and adapt to the impacts of climate change. The principle of “polluter pays” means the onus of providing those resources falls on industrialised countries.

There is a bewildering array of climate funds – more than 40. Multiple funding channels in theory increases the chances of countries accessing climate finance, but also makes the process more complicated. The various programmes have overlapping remits, different reporting rules, are impossible to coordinate, and historically all are providing insufficient financing. But momentum is building to do better.

No one can really tell. Key to it all is whether the world can stick to less than 2 degrees Celsius of warming, or if we have run-away climate change. The bill will “certainly run into hundreds of billions, if not trillions of US dollars annually after 2030,” according to a briefing by the think tanks Heinrich Boll Stiftung and the Overseas Development Institute.

The current agreed financing target is $100 billion a year from public and private sources by 2020. The good news was a report from the OECD – the economic forum of European countries – that said climate finance from rich to poor countries stood at $62 billion in 2014, up from $52 billion in 2013. But some are sceptical that the money being counted is new and additional, and could include reprogrammed existing funds.

“As long as the element of transparency (monitoring, reporting and verification) is not given the needed priority in most of these financial instruments under UNFCCC, these claims should not be taken seriously,” Sam Ogallah, of the PanAfrican Climate Justice Alliance, told IRIN.

The bulk of climate financing has gone to supporting the development of renewable energy and energy efficiency technologies in fast-growing countries. Each region has its lions. In Asia, India and Indonesia have grabbed the greatest share of financing. In North Africa and the Middle East, Egypt and Morocco alone have cornered 81 percent, while South Africa has sucked up one fifth of the limited amount of money provided to Africa.

For poorer countries, adaptation – building resilience to a warmer world – is more important than mitigating their already low carbon output. But only 24 percent of climate financing is spent on adaptation. According to Kofi Annan’s Africa Progress Report, around $11 billion is required by 2020, but so far development finance for adaptation in Africa from both bilateral and multilateral sources has amounted to $516 million on average each year.

A game-changer could be the Green Climate Fund (GCF), launched this year. It will devote 50 percent of all its funding to adaptation. Additionally, it will also be “gender responsive” – looking to tackle the special vulnerability faced by rural women.

What are the stumbling blocks?

The structure of climate financing is criticised for being fragmented and overly bureaucratic. In Africa, the bulk of the money is earmarked for small-scale projects rather than larger, national programmes. The small size increases transaction costs and prevents them from being readily replicable.

In developing countries, climate programmes have “tended to reflect the priorities of the international implementing institutions and the donors that fund them”, rather than responding to the needs and circumstances of recipient countries, note Heinrich Boll Stiftung and ODI.

There is also a problem of capacity. Developing countries may not have the baseline data and statistics for decent project design. Investment is also needed to boost capabilities of government departments. “For me, it’s an issue of priorities,” climate activist Kwesi Obeng told IRIN. “We can find money for everything else. If we’re serious, we should find funds for this and not be so dependent.”

Some governments struggle to meet the stringent requirements for funding. For example, in Indonesia, certification schemes to control slash and burn deforestation depend on the ability to keep non-compliant small-scale palm producers out of the supply chain. But that has proved exceptionally hard. In many other countries, efforts to regulate commercial logging through quotas are weakened through the corrupt sale of illegal concessions or the non-enforcement of laws.

What needs to be done?

Funds need to be more flexible and less risk averse, say Heinrich Boll Stiftung and ODI. They also need to become more transparent. Greater emphasis should be placed on the development of national capacity, and on appropriate ways to engage private businesses and investors.

Developing countries are increasingly seeing a low-carbon development pathway as a means to leapfrog into the 21st century, but they require technology transfer and financing to make that jump. It’s increasingly not about aid but investment, explained Africa development expert Peter da Costa.

African governments are increasingly focusing on domestic resource mobilisation. That requires clamping down on extractive industries “and their tax dodging, and curbing illicit financial flows out of the continent,” Da Costa said.

Such activities cost Africa $60 billion a year, according to an estimate by the UN's Economic Commission for Africa: more than enough to pay for the climate change action that the continent requires.